Infosys Technologies (INFY)

David Grossman - Thomas Weisel Partners - Analyst

Good morning. Thank you. Just a couple of quick questions first on the business mix during the quarter. It looks like the development revenues as well as the packages — if the development revenues had been gradually slowing

Kris Gopalakrishnan

David, sorry to interrupt you. Can you repeat because we are not able to hear it properly?

David Grossman

Can you hear me?

Kris Gopalakrishnan

Much better David. Yes. Much better.

David Grossman

Okay the first question was on the business mix. It looks like development revenue — the revenue growth has been slowing throughout the year and I am wondering if you could comment on that and it looks like perhaps you had a similar slowing on the packages side in the fourth quarter and I know that is the first quarter and several that it’s slowed down. But just curious if the two are linked or if there is any dynamic you’re seeing in the marketplace relative to both development and packaged apps?

Basab Pradhan

David, this is Basab. There really is no trend, which we can – which exists in services — certainly not connected with the company growth or anything that you saw this quarter or our guidance for next quarter.

Development and package implementation. Package implementation for certain is buoyant. We continue to see a lot of interest. We also are seeing the very early signs of success in combining Infosys Consulting and our package implementation practices. We recently won a very significant double-digit million dollar deal with one of our clients where we beat out the usual incumbent consulting companies and this was a deal where we combined our capabilities in Infosys Consulting and Enterprise Solutions to win the deal. So we are very hopeful that this package implementation will continue to be a driver of growth for the Company.

On the — the thing that is worth mentioning is maintenance. Maintenance, the growth has been higher because of many contracts that we signed in the last fiscal and even the fiscal before that, which were master services agreements that were focused on maintenance. As we have gone deeper into those organizations the maintenance growth has therefore come in because of that. So that’s perhaps why you are seeing maintenance growing faster compared to some of the other services.

David Grossman

Well I guess I’m just looking at development and it started the year I think at about 35% growth, I think my numbers are right and exited the year at about 22%. So and despite the 50% in the second quarter, so, I am not sure if it’s just lumpy or whether in fact you are seeing any particular trend?

Kris Gopalakrishnan

David, in absolute terms development is also growing for this quarter, last fiscal is 77.5. Last quarter was 93.5. This quarter is 94.3. So in absolute terms, you know it is not declining. Percentage wise it is declining but absolute terms it is not declining which means that package implementation, etc has been growing faster. We have also introduced new services like infrastructure management. We have introduced independent testing. Testing has gone to 6.1% of revenues in this quarter. So we have seen actually growth in other services also. In the last 12 months, if you just look at the last 12 months, development has gone from $272.6m to $370.2m. So we have seen growth in development revenue. Growth rate is down that’s all.

David Grossman

And then, just Mohan perhaps you could repeat a couple of numbers. Could you repeat what your net income expectations are for fiscal 2006 and it looks like it was — I guess that would include the $8m of options expense? Is that correct?

Mohandas Pai

David, we expect to earn a net income on at the middle of the range. If we take the middle of the range from $2,038m to $2,070m at $2,051m, of around $522m, at the middle of the range. And 25.5% net income as against 26.3% the previous quarter, and this is after factoring in $8m for a charge under FASB123 for staff compensation on expensing stock options. That is going to kick in from 1st July. If you look at the EPS — Our EPS guidance is 1.92 to 1.95 and if you gross up the stock option charge to compare with the previous year, it will be 1.95 to 1.98. A growth rate of 27.3% to 29.3%. And we do think that there could be an impact on the salary hike of about 1.1% to 1.4% at the gross income level which will make up by a percentage point decline in SG&A expenses. And if you look at the SG&A expenses they are expenses which were supposed to decline at the percentage for Infosys the parent company has happened. It has not declined to the extent that we committed last year, primarily because we took a decision mid-stream on account of the growth rates to invest back more in the business both for our subsidiaries and also for initiatives that we took.

David Grossman

Okay, but again, the 522 I think you said included the $8m of expense right?

For the options.

Mohandas Pai

Yes, the option expense is about $8m. We have factored that in to the guidance.

David Grossman

Okay and your expectations for wage increases for the year, does that include the $8m as well?

Mohandas Pai

Yes, the wage expectations have been built in and the wages increase will be paid from 1st April. They said that will come in the May payroll. We have budgeted a 14% to 15% increase in wages offshore and a 3% increase in wages onsite.

David Grossman

Right and does that wage expectation include the $8m of options?

Mohandas Pai

Yes, we are expensing the options as will be done for the full year.

David Grossman

Great, thank you.

Mohandas Pai

Thank you David.

Operator

Your next question comes from Lou Miscioscia from Lehman Brothers.